5/3/01 (www.usagold.com).... For the second straight day, gold opened on a strong note in New York, pushed by physical buyers hedging a variety of potential economic ills, not the least of which being continued lack of real strength in international equities markets. Along these lines gold advocate John Hathaway is quoted in the Financial Times saying:

"Since the Latin American crises of the early 1980s, the Federal Reserve's response to market difficulties has been to bail out anyone who has made a bad investment. Now the Fed's bailout strategy has gone too far. No longer are the potential losers from bad investments confined to lenders to foreign countries, bankrupt hedge funds or bad banks. It is now the American public, which has been suckered into pouring its life savings into a dangerously overvalued stock market."

Hathaway, who heads up the Tocqueville Gold Fund in New York, advocates gold diversification.

For quite some time, we postulated here the potentiality that gold might rise even in an environment where the dollar remained strong vis a vis other currencies including the euro and yen -- that for gold to go up it was not necessarily required that the dollar go down. Our logic was that rising energy costs would drive up inflation rates around the world even as these same countries stuck to a currency policy of competitive devaluation. We theorized that he investor response to the renewed inflation would be the historically proven solution -- gold diversification. That theory has slowly gained support among other analysts. In that same Financial Times article, Larry Edelson, editor of the Safe Money Report says:

"I believe a split is coming in the normal relationship between the two [dollar and gold]," says Edelson."In other words, a strong dollar does not necessarily mean lower gold prices. If the dollar continues to remain strong or get even stronger, it's a darn good sign there are big problems elsewhere in the world, problems that could easily light a fire under gold."

So the dollar aside, it is the demand for gold which will push up the price and that may or may not be in an environment where the dollar is falling. We continue to see signs of supply tightness including the stubbornly high lease rate. I wouldn't be surprised to see the gold market jolted some innocent morning with a major price jump. It will come, most likely, when we least expect it. And what the dollar is doing may have little or nothing to do with it.

"Something's afoot in the gold market...." Ian McAvity

"As suggested by Mr. McAvity, gold could very well be at a watershed. Evidence continued to build through April that some central bank[s] had decided to pull the plug on the gold carry trade -- the primary deterrent to higher gold prices since the early 1990s. Some speculated that the Bank of England was recalling gold for its highly publicized gold sales program. Others speculated that a continental central bank was recalling gold as part of a policy change related to the Washington Agreement. Whatever the case, the resulting shortage of metal sent lease rates soaring again and touched off a wave of specualtion on gold's future. Three prominent commentators in our May issue suggest that what's"afoot in the gold market" is akin to what happened in the late 1960s when the London Gold Pool broke down, and gold, enthralled at $35 for the better part of 35 years, was sent on its merry way to first break the $200 level in 1974 and then over $800 by 1980. Could it be as a prominent American philosopher once put it:"It's deja vu all over again?"



We invite you to delve into that and other perplexing gold related questions in the pages that follow starting with a provocative analysis from Mr. James Turk. Our advice remains the same: Continue to add to your gold holdings in a deliberate fashion. But we now add a sense of urgency: If you haven't started your gold diversification, or if your holdings are light, we suggest stepping up the process. As the situation described below unfolds, the small investor could be crowded from the already thin gold market by scrambling borrowers trying to find metal to pay their loans. The stubbornly high gold interest rate could very well be signalling a very real shortage..

Gruss

tofir





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